Seeking stable ground
After three years of nearly constant ups and downs, the feeling heading into 2023 is one of cautious optimism, and property management experts feel many asset classes will be on more solid ground by the end of the year.
“I’m hoping that the general spirit of the forward outlook is a sense of optimism,” says Shannon Longino, CPM®, HCCP, CMH, CMO, TCS, SBS, senior vice president at Truist Community Capital, the company’s affordable housing division, in Atlanta. “We’ve recovered, and we’re still recovering. But we’ve had enough doom and gloom, so we’d do well to renew ourselves with our passions and be reminded of our purpose.”
Karen Whitt, CPM®, RPA, CRE, president of U.S. real estate management services with Colliers, AMO®, says companies have been put to the test since 2020, and those still standing have shown their resilience.
“The businesses that have survived a pandemic and inflation have lived out Darwinism in the business world—only the strongest survive,” she says. “I don’t have a crystal ball, but I can say for certain that the businesses that thrive during times like these are the ones that stay nimble and can accommodate many different client requirements.”
To remain flexible in this way, property managers are keeping their eyes on several variables—economic, legislative, and technological, to name a few—that will shape the near future of real estate management.
One variable on everyone’s radar is inflation and its impacts on rents and the prices of goods and services—and whether a recession is on the horizon.
“Recessions cause dislocations within the market, which will, in turn, alter the outlook for various asset classes,” Whitt says, adding that people are watching with anticipation for signs of a softening market.
“That will probably drive many firms to take more conservative financial stances than they have over the last decade and will probably be concerning for transaction-focused professionals,” Whitt says. “In property management, we tend to shift focus away from expensive capital expenditures under such conditions and toward cost efficiency and protecting asset value and cash flow.”
Experts agree that the outlook for the industrial segment remains rosy, and Whitt adds retail to that list. “Much of retail spending has been diverted into essentials due to high inflation, but expectations are for more moderate inflationary pressures in 2023,” says Whitt. “This should support additional gains for retailers, and in turn, retail property owners.”
She adds that the office sector is expected to continue lagging while tenants decide on their future space needs. Property managers overseeing multifamily properties also have a positive outlook after the years of turmoil during the worst of the pandemic.
“We have landlords and owners who are recovering from the impacts of COVID-19 and the eviction moratorium, and they’ve finally been able to catch a break with the increased rents,” Longino says. “Now, we’re looking forward to seeing residents catch a break, as well.”
Cindy Clare, CPM®, chief operating officer of Bell Partners in Greensboro, North Carolina, expects to see more average rent growth while some of the dramatic rent increases of the past year balance out.
“The rent growth we’ve seen in the last 12 months has been unprecedented, and it’s not going to continue,” she says. “It’s important to realize that some of that massive growth was a bounce back from COVID. So, I do think we’ll see moderation and some normal rent growth. Overall, I’m cautiously optimistic.”
Clare says rent affordability will continue to be a hot topic and hopes a middle ground that benefits both landlords and residents can be reached.
“Just lowering the rents isn’t the answer because the costs to build, maintain, and run the properties continue to go up,” Clare says. “How do we find a solution that works for everybody?”
Longino echoes this and hopes 2023 will bring more available affordable housing.
“One of the challenges will be how we can get more affordable housing or multifamily units built quickly,” Longino says. “We need legislative leaders, developers, owners, management companies, and advocates to keep an ongoing dialogue to ensure this change fully takes place.”
Longino hopes that new affordable housing-related legislation will make it easier and more appealing for landlords to get involved in the program. “We have an open dialogue with legislative leaders,” says Longino, who has been advocating for affordable housing for more than 29 years. “With IREM, I’ve participated in many legislative sessions. The relationships are there, so the conversations, intent, and passion must be ongoing. We’re continuing to look at innovative ways and measures to incentivize landlords to participate in these programs to further develop this housing.”
Aside from affordable housing measures, multifamily property managers will keep an eye on any new regulations that might affect their properties. “Legislation will remain a part of the multifamily story in 2023 that you can’t diminish,” Clare says. “We’re already highly regulated.”
Longino says she’s also interested in climate change initiatives that could benefit multifamily properties.
“If passed, there are measures for the federal government to support landlords and consumers in installing energy-efficient systems, heat pumps, rooftop solar panels, water heaters—additions that can help residents have a safer and more efficient home,” Longino says. “We’ll have to continue to monitor all of this because, even once things are passed and implemented, it takes a while for all of them to trickle down.”
The role of tech and data
Unsurprisingly, the role of technology will continue to be a significant factor in 2023.
“Whether it’s self-guided tours, AI tools, or virtual touring, all of those things will come into play even more,” Clare says. “We’ll be looking at how tech can expand into the maintenance side, as well as how it could provide efficiencies that allow people on the site to spend more time focusing on the customer.”
Whitt says it will be imperative for property managers to keep an eye on emerging technologies to stay competitive. “Everybody is using a CRM and can sign a contract with Yardi, but it’s the developments in the fringes that create differentiation,” Whitt says. “We’re all still trying to figure out exactly what the metaverse’s impact will be on the world at large. I’m confident that that’s going to have a real impact on commercial properties.”
Property managers also realize the importance of effectively using the data captured by these various technologies. Clare says her team will explore how to use the correct KPIs and metrics to make better decisions and improve their predictive capabilities.
Says Whitt: “Data-driven operations are the future of CRE. Everything produces data now, and we’re deploying more tools that leverage the strengths of that capability. There are tools that help us monitor for infrastructure early warning signs so that buildings become more reliable. Meanwhile, software that supports general operations—like accounting and CRM—also produces myriad data points that remove cognitive bias and blind spots from our analyses. This helps firms improve their internal efficiency and create more value for clients.”
A pain point that will carry into the new year is staffing, especially for maintenance employees. Many of these on-site positions do not offer the flexibility or remote options that some job seekers now desire. Clare says her teams will explore ways technology and centralization can allow for more flexibility.
“I think this trend of looking for efficiencies and centralization will continue, particularly as expenses go up,” Clare says. “As the employee preferences and staff shortages continue to pose a challenge for us, we’ll look for ways to be more efficient in managing our properties while still providing great customer service. It’s a big challenge.”
Companies’ remote work policies will also affect every aspect of commercial real estate, says Whitt. “Some firms will take less space than they did before, while others may opt to expand as more inventory becomes available in competitive markets,” she says. “Space use will change, too, which will impact areas that range from design and construction to how our property managers and engineers handle day-to-day operations.”
Environmental, social, and governance (ESG) initiatives will also remain high priorities over the next 12 months. “At Colliers, we’ll continue to target state and local ESG requirements, but we’ll also work to make green operations a realistic path for owners through transparent operations that make data available to owners and buyers,” Whitt says. “Property operators will also need to deal with volatility associated with climate change and the costs associated with protecting real estate investments.”
Clare says all of the considerations for 2023 will come down to improving the customer experience. “We’ll look for new ideas for taking care of our residents,” she says. “What can we do to ensure our associates and residents are happy? If our residents are happy, they will stay. And if our associates are happy, they make our residents happy. Everything’s connected.”
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